Daily Commentary BY THE CURVE TEAM –

US Stimulus Imminent

8th of March, 2021

The long-awaited US fiscal stimulus bill finally looks like it will be confirmed.

After many delays in getting support and the changing of presidents, the US stimulus bill was passed in Congress and is set to pass the house of representatives on Tuesday. It is worth $1.9 trillion, which is close to 10% of GDP.

There is plenty of conjecture as to the efficacy of the stimulus. Many believe the economy does not need such a substantial boost given the recovery is well underway as covid is contained.

Already longer dated yields on government bonds have risen rapidly, partly because of the expected stimulus. This means the announcement is largely priced in to markets, but should still see a short term boost in asset prices and government bond yields.

The justification for the stimulus is that a lot of spare capacity remains in the economy and inflation has remained subdued since the GFC. At the very least, the stimulus will test the inflationary limits of government spending, i.e., give more of an idea how much stimulus can go into the economy before it becomes inflationary.

Australia at this stage has not followed the US’s lead. Instead, we have opted for many supply side reforms in the budget and will taper existing schemes such as JobKeeper, JobSeeker and the HomeBuilder grants. It helps that our economy has proven much more resilient than the rest of the world due to the containment of covid.

This week business survey data for February is released on Tuesday, consumer confidence for March is released on Wednesday and RBA Governor Lowe delivers a speech titled ‘The Recovery, Investment and Monetary Policy’ on Wednesday. Curve’s monthly economic commentary is also released on Tuesday.

Josh Stewart

Associate - Money Markets